Holding

The High Court was not justified to go into the merits of the adjudication; its order and the consequent Tribunal order are set aside, and the Tribunal must rehear the appeals without insisting on pre‑deposit.

Summary

The Union of India issued show‑cause notices under the Customs Act, 1962 alleging mis‑declaration, over‑invoicing and misuse of foreign exchange by Adani Exports Ltd. The adjudicating authority imposed penalties under Section 50 of the Foreign Exchange Regulation Act, 1973 read with Sections 49(3) and 49(4) of the Foreign Exchange Management Act, 1999. The respondents appealed before the Foreign Exchange Appellate Tribunal and sought dispensation of the pre‑deposit of the penalty, which the Tribunal rejected. The Gujarat High Court set aside the adjudicating authority’s order, examined the merits of the adjudication, and remitted the matter back to the adjudicating authority. The Union appealed, and the Supreme Court held that the High Court was not justified to go into the merits while an appeal was pending before the Tribunal; consequently the High Court’s order and the consequent Tribunal order were set aside, and the Tribunal was directed to rehear the appeals without insisting on pre‑deposit.

Issues considered

Whether the High Court could entertain the merits of the adjudication and set aside the adjudicating authority’s order while an appeal was pending before the Foreign Exchange Appellate Tribunal.
Whether the requirement of pre‑deposit of penalty could be dispensed with under the Foreign Exchange Regulation Act and the Foreign Exchange Management Act.

Legislation cited

Customs Act, 1962s. 129E
Foreign Exchange Management Act, 1999s. 49(3), s. 49(4)
Foreign Exchange Regulation Act, 1973s. 50

Subjects

Customs ActForeign Exchange Management ActForeign Exchange Regulation Actmis‑declarationover‑invoicingpenaltypre‑depositappellate jurisdictionhigh courttribunal

Judgment

A UNION OF INDIA AND ANR.
v.
ADANI EXPORTS LTD. & ANR.

NOVEMBER 12, 2007
B
[DR. ARIJIT PASAVAT AND S.H. KAPADIA, JJ.]
t
Customs Act, 1962; S. 129£/Foreign Exchange Management Act,
1999; Ss. 49(3) and 49(4)/Foreign Exchange Regulations Act, 1973;
c S.50:
Misuse offoreign exchange by mis-declaration ofdescription and
over invoicing of imported goods--Show-cause-Notices-Revenue
imposing penalty against noticees-Appeals along with application for
D dispensation ofpre-deposit ofpenaltyfiled by noticee-Applicationfor
pre-deposit rejected by Foreign Exchange Appellate Tribunal- -:\
Challenge to-Allowed by High Court remitting the matter to ·
adjudicating authority-On appeal, Held: Pending appeal before
Tribunal, High Court was not justified in going into merits and
E remitting the matter to adjudicating authority-As the Tribunal already
passed consequential order on the basis oforder passed by High Court,
impugned order and the order passed by Tribunal set aside-Tribunal
directed to take up appeals afresh without insistence on pre-deposit-
Directions issued
F Show-cause-Notices were issued by Revenue to respondents
and others for the alleged violation of certain provisions of the .'.{
Customs Act 1962. Later, Adjudicating Authority passed the orders,
which were challenged by the respondents before the Customs,
Excise and Service Tax Appellate Tribunal (CESTAT). Show-cause-
G Notices were also issued by the Revenue under Foreign Exchange
Management Act, 1999. The Authorities passed orders in terms of
the Foreign Exchange Regulation Act, 1973. The adjudicating ,,...
authority found the noticees guilty of the charges and in terms of
the powers conferred under Section 50 of the Foreign Exchange
H 974
~
UNION OF INDIA v. ADANI EXPORTS LTD. 975

-'r
Regulation Act read with Section 49(3) and 49(4) of the Foreign A
Exchange Management Act imposed certain amount as penalties
on them. Questioning correctness of the adjudication order, appeals
along with application for dispensation of pre-deposit of penalty
were preferred by the respondents before the Foreign Exchange
Appellate Tribunal. The application was rejected by the Tribunal. B
j Aggrieved, the respondents filed a writ petition before the High
Court. High Court set aside the order passed by the adjudicating
authority and remitted the matter to the adjudicating authority.
Hence the present appeal.
Appellant-Union oflndia contended that the approach of the c
High Court is clearly unsustainable. High Court itself noticed that
the primary challenge was to the order passed by the Tribunal
relating to pre-deposit. Though some grou.nds were taken relating
to the merits of the adjudication, the High Court should not have
dealt with them and should have left those matters to be adjudicated D
)..
..- . by the Tribunal.
Respondent-assessee submitted that earlier there was an order
passed by CESTAT which was in favour of the respondents-noticees.
Therefore, the High Court was justified in remitting the matter to E
the adjudicating authority.
Disposing of the appeal, the Court
HELD: 1.1. It is not in dispute that the respondents have filed
appeals before the Tribunal; and that primary challenge in the writ F
t petitions before the High Court was to the order relating to pre-
deposit, therefore, the High Court was not justified in going into the
merits and expressing its views and thereafter remitting the matter
to the Tribunal. Such a course was not available to be adopted.
[Para 8] [978-G, H]
G
1.2. The Tribunal has highlighted the relevant aspects while
-"'I
rejecting the prayer for dispensation of pre-deposit. The three
aspects to be focused while dealing with such applications are (a)
primafacie case (b) balance of convenience and (c) irreparable loss.
H
I
-I
976 SUPREME COURT REPORTS (2007] 11 S.C.R.

-f-. ·.
A The Tribunal categorically found that these factors were established
by the respondents. Even when Tribunal decides to grant full or
partial stay it has to impose such conditions as may be necessary
to safeguard the interest of Revenue. This is ap imperative
requirement under Section 129E of the Customs Act. Normally,
B therefore, this Court would have asked the respondent" assessee to
comply with the orders of Tribunal, by setting aside the impugned
order. But considering the fact that the Tribunal already passed
consequential order on the basis of the High Court's order dated
18.8.2006, the impugned order passed by the High Court and the
C consequential order passed by the Tribunal are set aside. The
Tribunal is directed to take up the appeal without insistence on pre-
deposit. The parties are directed to appear before the Tribunal
without any further notice on 3.12.2007. [Para 9) [979-A, B, C, DJ
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 5152 of
. D 2007.
From the final Judgment and Order dated 5.4.2006 ofthe High Court
of Gujarat at Ahmedabad in S.C.A. Nos. 1569, 1570 and 2000/2006.
A. Subha Rao, Dr. Shamsuddin, B.K. Prasad and T. Srinivas Murthy
E for the Appellants.
Dushyant Dave, Tarun Gulati, Gaurav Singh, Shweta Verma, Bina
Gupta, Praveen Kumar and Jaiveer Shargill for the Respondents.
The Judgment of the Court was delivered by
F
DR. ARIJIT PASAYAT, J. 1. Leave granted.
2. Challenge in this appeal is to the order passed by a learned Single
Judge of the Gujarat High Court, setting aside the order passed by the
Appellate Tribunal for Foreign Exchange (for short 'Tribunal') dated 4th
G January, 2006 in Appeal nos. 199, 500 and 501 of2006 whereby the
application for dispensation of pre-deposit was rejected.
3. Background facts in a nutshell are as follows:-
On the basis of the alleged violation of certain provisions of the
H
~.!,,

~-
fj

;

UNION OF INDIA v. ADANI EXPORTS LTD. 977
[PASAYAT,J.]
-\.-
Customs Act 1962 (in short the 'Act') notices were issued to certain A
noticees including the present respondents primarily on the ground of mis-
declaration as to the description and narration of the goods imported and
on the ground of over-invoicing so far as valuation is concerned and
consequentially misusing foreign exchange. Shovr-cause notices were
issued by the adjudicating authority and on consideration of the submissions B
~_, and replies filed, the orders in original were passed by the Co~ssioner
of Customs (hereinafter referred to as the 'Commissioner'). The ord¢rs
passed by the original authority were challenged by the respondents before
the Customs, Excise and Service Tax Appellate Tribunal, Bangalore {in
short 'CESTAT'). Notices were also issued under Foreign Exchange c
Management Act, 1999 (in short 'Management Act'). The Additional
Director General passed orders in terms of the Foreign Exchange
Regulation Act, 1973 (in short 'the Regulation Act') which has been
repealed along with the provisions of the Foreign Exchange Management
Act 1999 (in short the 'Management Act'). The order was passed after D
)_
..; '
considering the replies and submissions in response to the show-cause
notices. The adjudicating authority found the noticees guilty of the charges
and in terms of the powers conferred under Section 50 of the Regulation
Act read with Section 49(3) and 49(4) of the Ma.fl.agement Act imposed
the following penalties:
E
(A) A penalty of Rs.7,50,00,000/- (Rupees Seven Crores fifty
lakhs only) on Shri Dharmesh P. Shah, Proprietor ofM/s.
Vaishal Impex, (noticee No. I).
(B) A penalty of Rs.4,00,000/- (Rupees Four Crores only) on
~-
Mis. Adani Exports Limited, (noticee No.2). F
t-
(C) A penalty of Rs.2,00,00,000/- (Rupees Two Crores only) on
Slui Rajesh Adani, Director of Mis. Adani Exports Limited.
(noticee No.3).
4. Questioning correctness of the adjudication order, appeals were G
prefen-ed before the Tribunal. Along with the appeals, application for
dispensation of deposit of penalty amount was filed. The same was
rejected as noted above by order dated 4.1.2006.
5. The Tribunal was of the view that neither any prima facie case
H
978 SUPREME COURT REPORTS [2007] 11 S.C.R.

A was made out nor the financial stringency established to warrant
dispensation of pre-deposit. A writ petition was filed before the Gujarat
High Court primarily questioning the said order and also incidentally
questioning legality of the proceedings. The High Court not only dealt with
the impugned order before it relating pre-deposit aspect but also the merits
B of adjudication. It elaborately discussed the merits of the adjudication
proceedings, though it itself noted that the Special Civil Applications were
filed questioning correctness of the order relating to pre-deposit. Not only
the High Court held that the order directing deposit was unsustainable
but also held that the order of adjudication was unsustainable, overlooking
C the fact that the appeals were pending before the Tribunal. The High Court
set aside the order passed by the adjudicating authoritx and remitted the
matter to the adjudicating authority i.e. the Additional Director General.
6. In support of the appeal learned counsel for the appellant
submitted that the approach of the High Court is clearly unsustainable.
D High Court itself noticed that the primary challenge was to the order
passed by the Tribunal relating to pre-deposit. Though some grounds were ' ....

taken relating to the merits of the adjudication, the High Court should not
have dealt with them and should have left those matters to be adjudicated
by the Tribunal. Instead of doing that, the High Court set aside the order
E referring to certain observations made by CESTAT in other cases. It is
further submitted that the view taken by CESTAT in those cases has been
questioned before this Court and the appeal has been admitted. In that
view of the matter the order passed by the High Court is clearly
unsustainable.
F
7. Learned counsel for the respondent on the other hand submitted
that there was an earlier order passed by CESTAT which was in favour
of the respondents-noticees. Therefore, the High Court was justified in
remitting the matter to the adjudicating authority.
G 8. It is not in dispute that the respondents have filed appeals before
the Tribunal. As noted by the High Court, primary challenge in the \\Tit
petitions was to the order relating to pre-deposit. While dealing with that
the High Court was not justified in going into the merits and expressing
its views and thereafter remitting the matter to the Tribunal. Such a course
H was not available to be adopted.
UNION OF INDIA v. ADANI EXPORTS LTD. 979
[PASAYAT,J.]
_'iy
9. The Tribunal has highlighted the relevant aspects while rejecting A
the prayer for dispensation of pre-deposit. The three aspects to be focused
while dealing with such applications are (a) prima facie case (b) balance
of convenience and (c) irreparable loss. The Tribunal categorically found
that these factors were established by the respondents. Even when Tribunal
decides to grant full or partial stay it has to impose such conditions as B
·iJ may be necessary to safeguard the interest of revenue. This is an imperati:ve
requirement under Section 129E of the Act. Normally, therefore, we
would have asked the respondent assessee to comply with the orders of
Tribunal, by setting aside the impugned order. But considering the fact
that the Tribunal already passed consequential order on the basis of th~ c
High Court's order on 18.8.2006, we dispose of the appeal with following
directions:
(a) Impugned order passed by the High Court and the consequential·
order passed by the Tribunal on 18.8.2006 are set aside.
D
i. ..
(b) The parties are directed to appear before the Tribunal without •Y

J •
any further notice on 3.12.2007.
(c) The Tribunal shall take up the appeal by hearing them without
insistence on pre-deposit.
E
(e) The appeals shall be heard on day to day basis.
(f) The respondent shall file an undertaking before the adjudicating
authority to liquidate the demands, if any, sustained by the Tribi.l11al su~ject
of course, to the right of appeal if any, within eight weeks from the date
of receipt of Tribunal's order. This of course would be subject to any order F
t of interim protection, passed in the appeal.
10. The appeal is accordingly disposed of without any order as to
costs.
S.K.S. Appeal disposed of. G